Creating a Winning E-Business Second Edition

1. Creating a Winning E-BusinessSecond Edition Getting Your E-BusinessOff The Ground Chapter 4

2. Learning Objectives • Describe the financing issues associated with an e-business startup • Discuss the role of informal investors in ane-business startup • Identify issues important to venture capital investors Creating a Winning E-Business Second Edition, Chapter 4

3. Learning Objectives(continued) • Pitch your e-business idea to investors • Discuss the advantages and disadvantages of business incubators Creating a Winning E-Business Second Edition, Chapter 4

4. Starting a new e-business : • building a Web site prototype, • conducting market research, • renting office space, • buying or leasing equipment, • hiring employees —that require funds Creating a Winning E-Business Second Edition, Chapter 4

5. Startup Financing • Bootstrapping • Self-funding • Sweat equity • Invest your own time, effort, money, even re-mortgage and personal loan • Finding unique and inventive ways to acquire resources without borrowing money • Informal investors • Friends • Family members • Angel investors Creating a Winning E-Business Second Edition, Chapter 4

6. Startup Financing (continued) • Friends and family members • Know and trust entrepreneur • Stand by during tough times • Invest in entrepreneur rather than business idea • Downside is potential risk to relationships • Business misunderstandings • Business failure Creating a Winning E-Business Second Edition, Chapter 4

7. Startup Financing (continued) • Angel investors • Individuals with money and time who enjoy the excitement of early-stage investing • Not averse to taking risks • Primarily interested in business idea • Angel investment club members • Accredited investors with minimum net worth of $1M or annual income of $200,000 or household income of $300,000 over the last two years Creating a Winning E-Business Second Edition, Chapter 4

8. Startup Financing (continued) Creating a Winning E-Business Second Edition, Chapter 4

9. Creating a Winning E-Business Second Edition, Chapter 4

10. Cast study • Read the “Of Angels and E-Mail” case. • How did Sendmail get its start? • Do you think it was difficult or easy to get angel investors to look at the Sendmail e-business idea? Why? • Why do you think the Sendmail e-business idea was attractive to the members of Band of Angels and the co-founders of Sun Microsystems? Creating a Winning E-Business Second Edition, Chapter 4

11. Startup Financing (continued) Creating a Winning E-Business Second Edition, Chapter 4

12. 人 们往往注意美国的纳斯达克市场、风险投资市场如何发达，但却忽视了美国大量的商业天使的存在。 • 著名的商业天使就有作为微软公司创始人之一的保·艾伦 （PaulAllen）等。 • 据介绍，其实高风险与高收益总是孪生体，天使投资一般投资具有高成长性的科技型项目，其收益率普遍在50倍以上，超过万倍的回 报也不少见。 • 1992年，美国苹果公司刚创办时一笔9.1万美元的投资，6年后实现了1.54亿美元的回报。 • 搜狐网站当初创办时，张朝阳身无分文，其导师 尼葛洛庞帝和一位同学投资了22万美元，后来也实现了上百倍回报。 Creating a Winning E-Business Second Edition, Chapter 4

13. Startup Financing (continued) • Venture capitalist investors (VCs) • Professional investment company • Provide funds for startup businesses in exchange for equity position • Raise funds from endowments, insurance companies, and pension funds Creating a Winning E-Business Second Edition, Chapter 4

14. Start up financing • Venture capital investors: • Have to give up a large equity stake (20-40%) • One or more seats on board of directors • Have experienced management team member • Offer knowledge and contact Creating a Winning E-Business Second Edition, Chapter 4

15. Startup Financing (continued) • Venture capitalist investors (VCs) (continued) • Take many forms • Traditional partnerships • Government-sponsored investment companies • Corporate funding programs by high-tech companies Creating a Winning E-Business Second Edition, Chapter 4

16. Startup Financing (continued) Creating a Winning E-Business Second Edition, Chapter 4

17. Startup Financing (continued) Creating a Winning E-Business Second Edition, Chapter 4

18. Startup Financing (continued) • Venture capitalist investors (VCs) (continued) • E-business startup VC funding examples • Draper Fisher Jurvetson (DFJ) and Hotmail • Kleiner Perkins Caufield & Byers and Google • Small Business Investment Companies (SBIC)and America Online Creating a Winning E-Business Second Edition, Chapter 4

19. Business Incubators • Nurture startup businesses • Offer development, administrative, and support services • Office space • Telecommunication hookups • Reception and conference room facilities • Computer networks • Advisory services • Access to potential investors Creating a Winning E-Business Second Edition, Chapter 4

20. Business Incubators (continued) • Non-profit organizations or commercial businesses • Offer a quick “leg up” for entrepreneurs needing administrative and support services • Provide access to knowledgeable professionals, advisors, potential investors • Cost to entrepreneur • Fees for services • Loss of equity Creating a Winning E-Business Second Edition, Chapter 4

21. Business Incubators (continued) • Advantages • “One-stop solution” for many startup problems • Easy access to professional advice • Venue for interacting with other startups • Disadvantages • May be hefty fees for services • Giving up share of ownership equity to others Creating a Winning E-Business Second Edition, Chapter 4

22. Business Incubators (continued) • Non-profit business incubators • Generally cooperative venture between a university and local community • Examples • Austin Technology Incubator (ATI) • Advanced Technology Development Center (ATDC) • Houston Technology Center • Illinois Technology Enterprise Center (ITEC) • Women’s Technology Cluster (WTC) Creating a Winning E-Business Second Edition, Chapter 4

23. Business Incubators (continued) Creating a Winning E-Business Second Edition, Chapter 4

24. Business Incubators (continued) Creating a Winning E-Business Second Edition, Chapter 4

25. Business Incubators (continued) Creating a Winning E-Business Second Edition, Chapter 4

26. Business Incubators (continued) Creating a Winning E-Business Second Edition, Chapter 4

27. Business Incubators (continued) Creating a Winning E-Business Second Edition, Chapter 4

28. Business Incubators (continued) • Commercial business incubators • Businesses that provide incubation services for a fee and usually a large equity position • Examples • Batavia Industrial Center (BIC) • Idealab • eCompanies Creating a Winning E-Business Second Edition, Chapter 4

29. Business Incubators (continued) Creating a Winning E-Business Second Edition, Chapter 4

30. Business Incubators (continued) • Self-incubation • Participating in a members-only group of entrepreneurs • Share practical experience • Access to contacts • Sell or barter products and services with members • Example • Starve Ups Creating a Winning E-Business Second Edition, Chapter 4

31. Sponsoring Entities  • 8% Academic Institutions • 40% Government • 28% Economic Development Organizations • 4% For-Profit Entities (Corporations) • 8% Hybrid • 12% Not Applicable Creating a Winning E-Business Second Edition, Chapter 4

32. Pitching your e-business idea • The first sales meeting with angel investors or VCs • To get potential investors excited and interested in further discussion • One hour brief presentation • Hand out two to three pages based on Executive Summery of your business plan Creating a Winning E-Business Second Edition, Chapter 4

33. Pitch presentation • Define your product or service • Highlight the market need • Explain how your e-business meets that need • Potential profits • How your e-business’s management team can make it all happen • Make your proposal presentation Creating a Winning E-Business Second Edition, Chapter 4

34. Pitching Your E-Business To Investors (continued) • Learn as much as possible about potential investors before the pitch meeting • Be prepared for investor questions about • Business idea • Target market • Competitors • Critical marketplace issues • Do not fake answers; if you don’t know, simply say so and move on Creating a Winning E-Business Second Edition, Chapter 4

35. Pitching Your E-Business To Investors (continued) • During the pitch meeting • Be on time • Be prepared • Be enthusiastic • Bring all necessary equipment and documents • Differentiate yourself and management team from your competitors • Create the feeling that your e-business idea is a viable, exciting investor opportunity Creating a Winning E-Business Second Edition, Chapter 4

36. How to be a good speaker • I will not waste your time. • I know who you are and I know why you came. • I am well organized. • I will deliver this speech in an interesting, conversational way. • I know my subject. • Here are my most important points. • I am finished. From How to Give a Terrific Presentation by Karen Kalish (AMACOM, 1996). Creating a Winning E-Business Second Edition, Chapter 4

37. Creating a Winning E-Business Second Edition, Chapter 4

38. Creating a Winning E-Business Second Edition, Chapter 4

39. Chapter Summary • An entrepreneur should expect to invest personal funds in a startup • Informal investors include friends and family members and angel investors • Angel investor – A wealthy individual who enjoys investing in startups • Venture capitalist – A professional investor Creating a Winning E-Business Second Edition, Chapter 4

40. Chapter Summary(continued) • Meeting with investors • First meeting is a “pitch” or sales meeting • Use a carefully prepared pitch document • Anticipate questions • Be on time, be prepared, and be enthusiastic • Pitch document – A brief sales document based on the Executive Summary portion of the business plan Creating a Winning E-Business Second Edition, Chapter 4

41. Chapter Summary(continued) • Non-profit and commercial business incubators offer access to resources in exchange for fees and an equity position • Self-incubation offers access to some resources without paying fees or giving up equity Creating a Winning E-Business Second Edition, Chapter 4